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Copyright is owned by the Author of the thesis. Permission is given for
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Optimal Forest Management for
Carbon Sequestration and Biodiversity Maintenance
A thesis presented in fulfilment of the requirements for the degree of
Doctor of Philosophy
in
Economics
at Massey University, Turitea,
New Zealand
Thi Hong Nhung Nghiem
2011
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ABSTRACT
Managing planted forests for carbon sequestration and biodiversity maintenance
has become increasingly important in times of rapid climate change and the loss
of biodiversity worldwide. The objectives of this study are to find out private and
socially optimal management strategies for planted forests, and suggest an
appropriate policy for promoting multiple-use forests.
The research attempts: (1) to identify the harvesting strategies of forest stands that
can maximise the benefits from timber production and carbon sequestration; (2) to
identify the patterns that can balance economic gain and biodiversity
maintenance; (3) to examine the actual management strategies and biodiversity
conservation attitudes of forest owners; and (4) to recommend policy tools that
can be used to align private with socially optimal decisions.
The Faustmann model is extended to include carbon sequestration, biodiversity
conservation, multiple forest stands and spatial arrangements among forest stands.
The Safe Minimum Standard Approach is employed to model biodiversity
conservation. The number of birds is used as a biodiversity indicator. A directsearch algorithm is used to determine optimal sets of harvesting strategies. The
models are applied to planted forests in Yen Bai province, Vietnam. To get
primary data, 291 household forest owners and 4 state enterprises, growing
Eucalyptus urophyllaandAcacia mangiumwere surveyed.
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The results show that the actual cutting ages are 5 and 7 years for household and
enterprise forests, respectively. Both the optimal timber and carbon rotation ages
are between 9 and 11 years for two species. The value of carbon uptake makes the
optimal rotation age slightly shorter. The incorporation of spatial arrangements
has little impact on the optimal rotation age, but significantly increases the net
present value. The inclusion of biodiversity conservation lengthens the rotation
age and significantly reduces the profitability of forest owners. Policy
implications are that payment for carbon sequestration services of planted forests
in Vietnam is feasible. Merging small forest stands of several forest households
should be encouraged. Direct payments are an appropriate policy tool to
encourage household forest owners to lengthen rotation ages in order to enhance
biodiversity.
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ACKNOWLEDGEMENTS
I would like to express my sincere thanks to a number of people without whom
this thesis would not have been possible. Firstly, I would like to thank my
supervisor, Professor Anton Meister, for his excellent guidance and
encouragement through out this research. Professor Antons valuable suggestions,
corrections, and prompt responses have contributed much to the completion of
this thesis. I would also like to extend my deep gratitude to my co-supervisor, Dr.
Brendan Moyle, for his valuable guidances, understanding, and support for mystudy.
I am indebted to the Vietnamese Government to provide me a scholarship to study
my PhD. My grateful thanks also go to the Economy and Environmental Program
for South East Asia (EEPSEA) for providing me a fellowship to implement the
thesis fieldwork, particularly to Professor Nancy Olewiler (Simon Fraser
University), Associate Prof. Ted Horbulyk (University of Calgary), and Dr.Herminia Francisco (EEPSEA Director) for their thorough criticisms on my
research proposal and reports at EEPSEA.
I would like to express my gratitude to the organizers of the following
conferences for providing me scholarship and/or travel grants: the EEPSEA 31st
Biannual Workshop, 2009, Hanoi, Vietnam; International Scientific Congress
Climate change: Global risks, Challenges and Decisions, 2009, Copenhagen,
Denmark; EEPSEA 29th Biannual Workshop, 2008, Nonthaburi, Thailand; and
Environmental and Resource Economics Early-Career Researcher Workshop,
2007, Charles Sturt University, Australia. I also highly appreciate the comments
from the discussants and participants at these conferences and at the 17thEAERE
Annual Conference 2009, Amsterdam, the Netherlands.
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Special thanks also go to Professor Martin Young for providing me financial
support for meeting up with my co-supervisor and for an international conference;
and other academic and administrative staff of the School of Economics and
Finance, particularly Ms. Ha Lien Ton and Ms. Sue Edwards. I would also like to
thank the Student Learning Centre for their help with improving the written
language in my thesis, and to the International Student Office for their support.
I would like to thank Dr. Nguyen Nghia Bien, Director of Forestry Department,
Vietnam Ministry of Agriculture and Rural Development, who has encouraged me
and has given many creative ideas on improving the research. I would also like to
extend my thanks to my colleagues at Vietnam Forestry University, particularly
Department of Economics, for their patience, constructive suggestions, and
excellent field assistance. Thanks to Mr. Kieu Tu Giang, Head of Forestry
Department, and people in Yen Bai province who have been very cooperative and
enthusiastically attending interviews.
Finally, many thanks to my husband and my son for their understanding, sharing,and inspiration. Thanks to my mother who has encouraged me and taken care of
my lovely son. My special thanks are also extended to my sisters, and other
members of my extended family for their patience, support, and encouragement.
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LIST OF RESEARCH OUTPUTS DURING THE PHD STUDY
PERIOD
EEPSEA 31stBiannual Workshop. Presenting final research report titled Optimal
Forest Management for Carbon Sequestration: A Case Study of Household Forest
Owner and State Enterprises, 16-19thNovember 2009, Hanoi, Vietnam.
The 17thEAERE Annual Conference. Presenting the paper titled The opportunity
cost of biodiversity in planted forests: A Case Study of Pinus Radiata in New
Zealand, 24-27thJune, 2009, Amsterdam, the Netherlands.
International Scientific Congress Climate change: Global risks, Challenges and
Decisions. Presenting the paper titled Optimal Forest Management for Carbon
Sequestration: A Case Study in Yen Bai Province, Vietnam,10-12thMarch 2009,
Copenhagen, Denmark.
EEPSEA 29th Biannual Workshop. Presenting research proposal titled Optimal
Forest Management for Carbon Sequestration: A Case Study of Eucalyptus
Urophylla and Acacia Mangium in Yen Bai Province, Vietnam, 5-8thMay 2008,
Nonthaburi, Thailand.
Environmental and Resource Economics Early-Career Researcher Workshop.
Presenting the paper entitled Optimal Forest Management for Balancing
Economic Gain and Biodiversity over Multiple Age-classes and Spatial
Interdependence, 12-13thNovember 2007, Charles Sturt University, Australia.
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TABLE OF CONTENTS
ABSTRACT ......................................................................................................... IACKNOWLEDGEMENTS ............................................................................... IIILISTOFRESEARCHDURINGTHEPHDSTUDYPERIOD ..........................VLISTOFTABLES ...............................................................................................XLISTOFFIGURES ...........................................................................................XIILISTOFABBREVIATIONSANDSYMBOLS .............................................XIII
1. CHAPTER ONE. INTRODUCTION .......................................................... 11.1 INTRODUCTION ....................................................................................... 11.2 BACKGROUNDANDPROBLEMSTATEMENTS ................................. 2
1.2.1 The Kyoto Protocol and the Vietnamese Government policies ........... 21.2.2 The Convention on Biological Diversity ............................................. 41.2.3 Biodiversity in Vietnam ....................................................................... 51.2.4 Planted forests in Vietnam .................................................................. 5
1.3 THESTUDYAREA ................................................................................... 81.3.1 General conditions .............................................................................. 81.3.2 The forest resource and legal framework............................................ 91.3.3 Market conditions .............................................................................. 11
1.4 RESEARCHOBJECTIVES ...................................................................... 131.4.1 General objectives ............................................................................. 131.4.2 Specific objectives ............................................................................. 13
1.5 RESEARCHQUESTIONS ....................................................................... 141.5.1 Optimal forest management for timber production and carbonsequestration ................................................................................................. 141.5.2 Optimal forest management for biodiversity conservation ............... 151.5.3 Policy tools and the optimal level of direct payments ....................... 16
1.6 CONTRIBUTIONS ................................................................................... 161.7 THESTRUCTUREOFTHETHESIS ...................................................... 18
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2. CHAPTER TWO. LITERATURE REVIEW........................................... 192.1 INTRODUCTION ..................................................................................... 192.2 OPTIMALFORESTMANAGEMENT .................................................... 20
2.2.1 Optimal forest management when only timber has market value ..... 202.2.2 Optimal forest management including amenity values and carbonsequestration ................................................................................................. 222.2.3 Optimal forest management with biodiversity maintenance ............. 262.2.4 Optimal forest management under uncertainty ................................. 292.2.5 Optimal forest subsidy for promoting biodiversity ............................ 32
2.3 ENHANCINGBIODIVERSITYINPLANTEDFORESTS..................... 332.3.1 Definition of biodiversity and its importance .................................... 332.3.2 Biodiversity measurement ................................................................. 372.3.3 Biodiversity valuation ........................................................................ 392.3.4 Forest management and biodiversity ................................................ 43
2.4 PUBLICPOLICIESFORFORESTMANAGEMENT............................. 452.4.1 Definition and classification of public policies ................................. 462.4.2 Regulations ........................................................................................ 472.4.3 Education ........................................................................................... 482.4.4 Subsidies and taxes ............................................................................ 492.4.5 Direct payments ................................................................................. 502.4.6 Payment for environmental services ................................................. 532.4.7 Forest certification ............................................................................ 542.4.8 Biodiversity offsets ............................................................................ 552.4.9 Integrated conservation-development projects ................................. 562.4.10
Other policy tools .......................................................................... 58
2.5 SUMMARY .............................................................................................. 59
3. CHAPTER THREE. METHODOLOGY ................................................. 613.1 INTRODUCTION ..................................................................................... 613.2 SETUPFORTHEBIODIVERSITYMODEL ......................................... 61
3.2.1 The safe minimum standard approach .............................................. 613.2.2 The selection of taxa as a biodiversity indicator ............................... 673.2.3 The calculation of population size..................................................... 71
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3.2.4 The minimum viable population (MVP) ............................................ 723.3 THEOPTIMIZATIONMODELS............................................................. 74
3.3.1 The timber optimization model .......................................................... 743.3.2 The carbon optimization model ......................................................... 763.3.3 The biodiversity optimization model ................................................. 773.3.4 The optimal subsidy model ................................................................ 80
3.4 THEOPTIMIZATIONMETHODANDDATA ...................................... 813.4.1 The optimization method ................................................................... 813.4.2 Model data ......................................................................................... 84
3.5 GROWTHANDSEQUESTRATIONFUNCTIONSANDBIRDPOPULATION .................................................................................................. 86
3.5.1 Timber growth function ..................................................................... 863.5.2 Carbon sequestration function .......................................................... 873.5.3 Bird abundance function ................................................................... 89
3.6 THESURVEY .......................................................................................... 923.6.1 Questionnaire development ............................................................... 923.6.2 Survey implementation ...................................................................... 933.6.3 Data analysis ..................................................................................... 95
4. CHAPTER FOUR. RESULTS AND DISCUSSION ............................... 984.1 INTRODUCTION ..................................................................................... 984.2 THESURVEY .......................................................................................... 98
4.2.1 Descriptive data ................................................................................ 994.2.2 Planting cost and timber price ........................................................ 1014.2.3 Forest management for timber production and carbon sequestration 106
4.2.4 Payment for carbon sequestration .................................................. 1084.2.5 Biodiversity conservation attitudes ................................................. 111
4.3 TIMBERANDCARBONOPTIMIZATIONMODELS ........................ 1134.3.1 The optimal rotation age at stand level ........................................... 1144.3.2 The optimal rotation age at forest level .......................................... 1194.3.3 Sensitivity analysis to carbon price ................................................. 1234.3.4 Sensitivity analysis to carbon payment scheme ............................... 126
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4.3.5 Sensitivity analysis for a changing planting cost subsidy ............... 1274.3.6 Sensitivity analysis to timber price .................................................. 1294.3.7 Sensitivity analysis to carbon sequestration functions .................... 1314.3.8 Sensitivity analysis to economies of planting scale ......................... 132
4.4 BIODIVERSITYOPTIMIZATIONMODEL......................................... 1344.4.1 The optimal rotation age ................................................................. 1354.4.2 The role of longer rotations to the enhancement of biodiversity .... 1374.4.3 Sensitivity analysis to the minimum viable population ................... 1394.4.4 Sensitivity analysis to the discount rate .......................................... 1404.4.5 Sensitivity analysis to the carbon price ........................................... 1424.4.6 Sensitivity analysis to the timber price ............................................ 143
4.5 POLICYANALYSIS .............................................................................. 1464.5.1 The optimal levels of direct payments ............................................. 1464.5.2 The analysis of the forest policy tools ............................................. 1484.5.3 The analysis of direct payments ...................................................... 151
5. CHAPTER FIVE. SUMMARY AND CONCLUSIONS....................... 1545.1 INTRODUCTION ................................................................................... 1545.2 SUMMARYOFTHESTUDY ................................................................ 154
5.2.1 Overview of the problem ................................................................. 1545.2.2 Purpose statement ........................................................................... 1555.2.3 Review of the methodology .............................................................. 1565.2.4 Major findings ................................................................................. 156
5.3 CONCLUSIONS ..................................................................................... 1585.3.1 Policy implications .......................................................................... 1585.3.2
Limitations ....................................................................................... 160
5.3.3 Recommendation for further research ............................................ 161
APPENDICES ................................................................................................... 162APPENDIXAANNUAL INCREMENT OF TIMBER GROWTH............................... 162APPENDIXB QUESTIONNAIRES.................................................................... 164APPENDIXC GAMSCODING....................................................................... 180
REFERENCES .................................................................................................. 190
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LIST OF TABLES
Table 3.1 Matrix of losses (Bishop) ...................................................................... 63Table 3.2 Matrix of losses (Ready and Bishop) .................................................... 65Table 3.3 An example to show how the model comes up with the same minimum
number of birds by using the indicator SBt.................................................... 79Table 3.4 Total abundance of all birds according to vertical height above ground
....................................................................................................................... 90Table 3.5 Total abundance of birds at different stand ages (transferring from
heights of trees) ............................................................................................. 90Table 3.6 Location and sample size ...................................................................... 95Table 4.1 General information on the household forest owners ........................... 99 Table 4.2 Production information on the household forest owners .................... 100Table 4.3 Inflation rate in Vietnam ..................................................................... 102Table 4.4 Planting costs ....................................................................................... 102Table 4.5 Timber price and revenue in 2007 ....................................................... 103Table 4.6 Stand level rotation ages for timber only and carbon values for
Eucalyptus urophylla in forest households and enterprises ........................ 115Table 4.7 Stand level rotation ages for timber only and carbon values for Acacia
mangium in forest households and enterprises ............................................ 116Table 4.8 Case studies used for the forest level models for Eucalyptus urophylla
..................................................................................................................... 120Table 4.9 Forest level rotation ages with timber only and carbon values for
Eucalyptus urophylla................................................................................... 122Table 4.10 Sensitivity analysis of the stand level carbon rotation age to carbon
price forEucalyptus urophyllain household and enterprise forests ........... 124
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Table 4.11 Sensitivity analysis of Faustmann rotation age to carbon price for
Acacia mangiumin forest households and enterprises ................................ 125Table 4.12 The carbon rotation age at stand level with carbon payment scheme126 Table 4.13 Sensitivity analysis of the carbon rotation age at stand level with the
planting cost subsidy forEucalyptus urophylla.......................................... 127Table 4.14 Sensitivity analysis of Faustmann carbon rotation age with the planting
cost subsidy forAcacia mangium................................................................ 128Table 4.15 Sensitivity to carbon sequestration function at stand level for
Eucalyptus urophylla................................................................................... 132Table 4.16 Sensitivity of the timber optimal rotation to at forest level for
Eucalyptus urophylla................................................................................... 133Table 4.17 The optimal results of all cases at an 8% discount rate and the 50
MVP forEucalyptus urophylla................................................................... 135Table 4.18 Percentage of different forest stand types in the total forest area over a
50 year planning horizon ............................................................................. 138Table 4.19 Sensitivity analysis of the biodiversity rotation age to the MVP ...... 139Table 4.20 Sensitivity analysis of the biodiversity rotation age to the discount rate
(MVP=50) ................................................................................................... 141Table 4.21 Sensitivity analysis of the biodiversity rotation age to timber price . 145Table 4.22 The optimal annual direct payments required to equate private and
social rotation ages ...................................................................................... 147
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LIST OF FIGURES
Figure 1.1 Map of Yen Bai province ....................................................................... 8Figure 1.2 Proportion of forest land ownership in Yen Bai province ..................... 9Figure 3.1 Graphical representation of the direct search algorithm ...................... 83Figure 3.2 The bird abundance and age of stand ................................................... 91Figure 3.3 The function for bird abundance and age of stand: SBT=22.215e
0.1421x
....................................................................................................................... 92Figure 4.1 Planting costs forEucalyptus urophylla............................................ 104Figure 4.2 Planting costs forAcacia mangium.................................................... 105Figure 4.3 Sensitivity analysis of the carbon rotation age at a stand level to timber
price when timber price is varied with timber size ..................................... 130Figure 4.4 Sensitivity analysis of the carbon NPV to timber price when timber
price is varied with timber size.................................................................... 130Figure 4.5 Sensitivity of the carbon optimal rotation to at forest level for
Eucalyptus urophylla................................................................................... 134Figure 4.6 Sensitivity analysis of the biodiversity rotation age to carbon price . 143
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LIST OF ABBREVIATIONS AND SYMBOLS
CBD Convention on Biological Diversity
CDM Clean Development Mechanism
CV Contingent Valuation
EUR Euro
FAO Food and Agriculture Organization
GAMS General Algebraic Modelling System
FAO Food and Agriculture Organization
ha Hectare
MARD Ministry of Agriculture and Rural Development
MVP Minimum Viable Population
NPV Net Present Value
PES Payment for Environmental Services
r Discount Rate
SMS Safe Minimum Standard
T Optimal Rotation Age
UNFCCC United Nations Framework Convention on Climate Change
USD United States Dollar
VND Vietnam Dong
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1.CHAPTER ONE. INTRODUCTION
1.1INTRODUCTION
According to the Copenhagen Accord, climate change is one of the greatestchallenges of our time and a deep cut in global emissions is required to combat
this problem (UNFCCC, 2009). The Copenhagen Accord also recognizes the
crucial role of reducing emissions from deforestation and the need to enhance
removals of greenhouse gas emissions by forests, and commits to provide funding
for such actions in developing countries. Meanwhile, climate change also brings
about biodiversity loss, which poses a real threat to the livelihoods, food security
and health of the poor. Again, forests and changes in forest management practicescan help to conserve biodiversity. Since the annual rate of natural forest loss is
0.3% (FAO, 2007) and is irreversible, planted forests appear as a "lesser evil" to
protect indigenous vegetation remnants (Brockerhoff, Jactel, Parrotta, Quine, &
Sayer, 2008). This study, therefore, examines changes in forest management
practices to provide carbon sequestration and biodiversity conservation.
This chapter is structured as follows. The next section sets up the background for
the study and presents the problem statements. The study area is described in
section 1.3. Sections 1.4 and 1.5 identify research objectives and research
questions, respectively. The contributions of the study are presented in section
1.6. The last section presents the structure of the thesis.
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1.2 BACKGROUND AND PROBLEM STATEMENTS
1.2.1 The Kyoto Protocol and the Vietnamese Government policies
In response to climate change, country members of the United Nations
Framework Convention on Climate Change (UNFCCC) proposed the Kyoto
Protocol, an international agreement with legally binding measures (UNFCCC,
1997). The Kyoto Protocol sets binding targets for 37 industrialized countries and
the European community for reducing greenhouse gas emissions to an average of
five per cent below 1990 levels over the period 2008-2012. One of the
mechanisms that countries can use to meet their targets is to plant trees
(reforestation), since trees sequester carbon from the atmosphere and hence,
reduce carbon dioxide concentrations. Even though it is not yet sure if the Kyoto
Protocol will continue after 2012, it is almost sure that some form of international
policy on climate change will continue, and the rules to be set up for reforestation
programs will probably rely heavily on those developed for the Kyoto Protocol
(Caparros, Cerd, Ovando, & Campos, 2010)
The Kyoto Protocol has set up a framework for a global market of carbon credit to
be formulated (via emission trading), and the optimal price of carbon is projected
to rise from around $45 per metric ton in 2015 to roughly $220 in 2050
(Nordhaus, 2007). The global cost of a climate policy with forestry as an
abatement option is $3.0 trillion cheaper than a policy without forestry (Tavoni,
Sohngen, & Bosetti, 2007). These figures strongly suggest that carbon uptake
should be introduced into the management strategy to increase the forests values.
If society is both serious about climate mitigation and serious about containing
costs, there is little choice but to develop programs that increase the stock of
carbon in forests." (Sohngen, 2009, p. 5).
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The Vietnamese Government ratified the Kyoto Protocol on 25 September 20021.
The Government has already implemented some trial projects to pay for
environmental services including carbon sequestration (Ha, Noordwijk, & Thuy,
2008; Vietnamese Government, 2008). According to Phu (2008), the Government
has regulated that planted forests, which are operated either by private or state
organizations, are eligible for payment for environmental services after four years
of planting.
This payment can be made directly to the forest owners. For example, all visitors
or tourists to forests have to buy a ticket, issued by forest owners, at the entrance.
After paying tax, all the money collected from the sale of tickets belongs to the
forest owners. The payment can also be made indirectly from individuals or
organizations who benefit from the environmental services, such as clean water,
fresh air, underground water and eco-tourism; or whose activities negatively
impact on forests, for example, wood processing, mineral extraction, and ceramic
production.
The Government takes the responsibility for collecting this money and then pays
it to the forest owners whose forests provide the environmental services. The
Government also collects money from domestic and international organizations
supporting environmental services and from the sale of carbon credit (Phu, 2008).
For instance, the funding for the CDM project, which is jointly operated by
Vietnamese and Japanese organizations, in Cao Phong district, Hoa Binh province
comes from Honda Vietnam, and the sale of carbon credit, timber and other non-
timber forest products (Ha, et al., 2008). In the case that the payment to forest
owners is less than the costs borne by forest owners to provide the environmental
services such as carbon sequestration and clear water, the Government commits to
subsidize products of CDM projects (Vietnamese Government, 2007c).
1
The Vietnamese government has not submitted a pledge to the Copenhagen Accord yet(UNFNCC, 2010)
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1.2.2 The Convention on Biological Diversity
There is no doubt that biodiversity loss poses a real threat to the livelihoods, food
security and health of the poor (Briefing, 2008). Yet, the rate of biodiversity lossis increasing alarmingly (Purvis & Hector, 2000), as a result of climate change,
the over-exploitation of natural resources, invasive species, pollution, and
institutional changes (Deke, 2007; Thomas et al., 2004). Projections of global
change impacts on biodiversity show continuing and, in many cases, accelerating
species extinctions, loss of natural habitat, and changes in the distribution and
abundance of species and biomes over the 21st century (Leadley, Fernandez-
Manjarrs, & Walpole, 2010).
The Convention on Biological Diversity (CBD) entered into force on 29
December 1993 aims at: conserving biological diversity, sustainable use of the
components of biological diversity, and fair and equitable sharing of the benefits
arising out of the utilization of genetic resources. The CBD states that conserving
biodiversity is fundamental to achieving environment sustainability and
sustainable development (CBD, 1992).
Forests provide some of the most important sources of biodiversity and are a
habitat for more than half of the described territorial plant and animal species on
earth (Hassan, Scholes, & Ash, 2005). The CBD addresses forests directly
through the expanded programme of work on forest biological diversity (annex to
decision VI/22), adopted in 2002 (CBD, 2002). This programme emphasizes
conservation of forest biodiversity and requires that at least 30% of planted forests
should be managed in a way that promotes biodiversity. However, the CBD has
not formulated any incentive program for conserving biodiversity such as in the
Kyoto Protocol.
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1.2.3 Biodiversity in Vietnam
The Southeast Asia region contains the highest mean proportion of country-
endemic bird (9%) and mammal species (11%) (Sodhi, Posa, et al., 2010). Beingone of ten countries in this region, Vietnam is recognized as one of the most
biologically diverse countries in the world (VNexpress, 2006). It has 11,458
species of fauna, 21,017 species of flora and 3,000 species of micro-organisms,
and many new species which are discovered every year (An & Ha, 2006). The
rich natural ecosystems of Vietnam are home to nearly 10% of the total global
mammal and bird species (An & Ha, 2006).
It is estimated that there will be losses of 1385% of all species in the Southeast
Asia region by 2100 (Sodhi, Posa, et al., 2010). In Vietnam, 700 species of
animals and plants are threatened with national extinction and over 300 species
are threatened with global extinction (An & Ha, 2006). Deforestation is the main
contributor to these biodiversity losses (An & Ha, 2006; Sodhi, Koh, et al., 2010;
Sodhi, Posa, et al., 2010).
Natural forest cover in Vietnam declined from 43% of the land area in 1943 to
26% in 1993, as a result of agricultural expansion, logging, and the effects of war.
Between 2000 and 2005, the natural forest cover was further reduced, however,
the total forest cover in Vietnam increased to 3237% due to reforestation
(Meyfroidt & Lambin, 2008). Because of the long history of human disturbance
and the continuing clearing of natural forests, however, biodiversity is still
threatened in Vietnam despite the recent increase in total forest cover (Meyfroidt
& Lambin, 2008).
1.2.4 Planted forests in Vietnam
There is no doubt that planted forests have multiple uses (such as carbon
sequestration, soil and water protection, biodiversity conservation), however, they
are still mainly managed to provide maximum income from selling timber.
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Planted forests are defined as forests of predominantly introduced species
established through planting and/or seeding, and forests of native species
established through planting and/or seeding and managed intensively (FAO,
2007). Planted forests only account for 7% of total forest cover in the world, but
provide approximately 50% of total wood production. Since wood demand
continues to grow and wood supply from natural forests is decreasing, the area of
planted forests is expected to further expand in future years (FAO, 2007).
In Vietnam, the area of productive planted forest2 constitutes approximately
13.1% of the total forest area and this has increased by 11.9% per annum during
the period 2002-2006 (MARD, 2007). In a time of rapid climate change,
managing planted forests for multiple-use purposes is increasingly important. In
addition, claims are made that Vietnam could gain a lot from engaging in the
international carbon market; however, the benefits of carbon sequestration have
not been adequately studied in the management of productive planted forests (Bui
& Hong, 2006).
In Yen Bai province, most of the fast-growing tree species in productive planted
forests are cut at the ages of 5 year (Nguyen, Nguyen, Bui, & Trinh, 2006). This
cutting age is less than the optimal harvesting age that takes into account both
timber production and carbon sequestration (Diaz-Balteiro & Rodriguez, 2006;
van Kooten, Binkley, & Delcourt, 1995). Moreover, the majority of forest farmers
apply a clear cut practice (Bui & Hong, 2006) that destroys habitat and causes
serious loss of biodiversity (Pawson, Brockerhoff, Norton, & Didham, 2006).
These consequences are the result of forest farmers daily basic needs, lack of
investment capital (Nguyen, et al., 2006), and no payment for environment
services (Bui & Hong, 2006) among others.
Up to now, Vietnam has not had multiple-use planted forests (FAO, 2006;
MARD, 2007). Nevertheless, the Vietnamese Government has recognized the
2This is a new definition used in State of the World Forest (FAO, 2007).
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importance of multiple-use planted forests and two Decisions signed by the Prime
Minister regarding productive planted forests have recently been issued. Decision
No. 100/2007/QD-TTg dated July 2007 states that the Government encourages
forest owners to lengthen rotation ages (Vietnamese Government, 2007b).
Decision No. 147/2007/QD-TTg promulgated in September 2007 emphasizes that
productive planted forests are multiple-use planted forests, and the Government
subsidizes the forest owners to partly compensate them for environmental services
and for low profitability of planting trees (Vietnamese Government, 2007a).
During the period 20072015, the area of productive planted forests will continue
to expand as the result of the Five Million Hectare Afforestation Program
(Vietnamese Government, 2007a) and because of a large demand for wood
domestically (MARD, 2006). To increase the value of carbon sequestration and
the maintenance of biodiversity while ensuring timber production, there is an
urgent need to adopt an optimal management strategy for productive planted
forests.
This study takes into account the benefits of timber production, carbon
sequestration, and biodiversity conservation in the optimal management of planted
forests. Prevailing forest management policy is managing forest at stand level,
which does not allow interactions and feedback effects between forest stands
within the forests. In addition, stand level management often neglects the total
diversity of the entire forest which plays a potentially important role in
biodiversity conservation (Armsworth, Kendall, & Davis, 2004). Economies oflarge scale in planting timber is also ignored in stand level management. To
capture all these factors, the optimal management strategy needs to be considered
at a forest level. The optimal management strategy at both stand and forest levels
will be applied to household and enterprise planted forests in Yen Bai province,
Vietnam.
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1.3 THE STUDY AREA
1.3.1 General conditions
Yen Bai is 180 km northwest of the capital, Hanoi, with a total area of 688,292 ha,
of which more than 70% is covered by mountains and highlands (Figure 1.1). The
area has a tropical climate with two distinctive seasons caused by the monsoon
wind. The hot wet season lasts from April to October and the cold dry season
from November to March. The mean annual temperature is 22.9C, with the
highest temperature recorded 37.3C. Annual rainfall ranges from 1,500 mm to
2,200 mm, and the average humidity is 84.06%.
Figure 1.1 Map of Yen Bai province
Source:www.google.com.vn
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1.3.2 The forest resource and legal framework
Yen Bai is a major timber supply area in Northern Vietnam. The area of
productive planted forest in Yen Bai is 116,472 ha, accounting for 59.1% of thetotal area and 6.94% of the total productive planted forest area in Vietnam
(MARD, 2007). Nine state enterprises (Yen Bai Forestry Department, 2008) and
41,000 households are involved in forest plantation (Nguyen, et al., 2006). In Yen
Bai, 50% of the productive forest area is managed by Commune Committees, 42.1
% by households, 7.6% by forest enterprises, and the remaining area belongs to
other institutions (Figure 1.2).
Commune Committees
Households
State forest enterprises
Other institutions
Figure 1.2 Proportion of forest land ownership in Yen Bai province
There are variations in forest investments and harvesting regimes under different
types of ownership. Under the Commune Committees category, investments in
planted forests are paid for by the Government, and thus, their harvesting plans
must be approved by the Government. Under the households category, households
are financially responsible for their investments, and they do not have to seek
harvesting permissions from the Government. State forest enterprises also use
Government funds for their plantation investments and must seek harvesting
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permissions like the Commune Committees; however, they concentrate on
commercial purposes, while Commune Committees focus on the protection of
natural and planted forests.
Planted forests are dominated by fast growing trees such asEucalyptus urophylla,
Acacia mangium, Styrax tonkinensis, Manglietia conifera, Cinnamomun cassia
Blume and other native species (YenBaiForestryDepartment, 2008). Eucalyptus
urophylla and Acacia mangium were both introduced to Vietnam in early 1980s,
grow fast and are well adapted to local natural conditions (MARD, 2003).
In Vietnam, all forest land is under state ownership. According to Government
Decree No. 163/1999/ND-CP (Vietnamese Government, 1999), forest lands are
allocated and leased to individuals and organizations for long-term forestry
purposes. Forest land allocated to households shall not exceed 30 ha and 50 year
use right. After 50 years, the right to use the land can be extended at the request of
the forest owner; otherwise it reverts back to the Government. Government
Decree No. 135/2005/ND-CP (Vietnamese Government, 2005c) allows stateforest enterprises to contract their land to households for a maximum of 30 years.
Therefore, in principle, forest owners have sufficient land to apply sustainable
management and long rotation intervals. In other words, household forest areas
can be divided into pieces in order to grow multiple age class species; and
households can delay harvest up to 50 years.
According to Governments Decree No. 23/2006/ND-CP (VietnameseGovernment, 2006), forest owners can exchange, transfer, rent, inherit or
mortgage the right to use the land they have been allocated. They can also use
their land as capital for joint ventures. Therefore, forest owners could pool their
land for carbon sequestration management. However, they cannot change the
purpose of land use, unless approved by the Government.
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Decision No. 147/2007/QD-TTg (Vietnamese Government, 2007a) states that
forest farmers who are allocated forest land are given a subsidy of 1.5 million
VND per ha per rotation and can keep 100% of the forest products. However, they
have to pay a duty of 80 kg rice per ha per rotation (approximately 0.24 million
VND per ha per rotation). Forest owners are required to replant the forests within
12 months after harvest. According to Government Decrees No. 106/2004/ND-CP
(Vietnamese Government, 2004) and No. 20/2005/ND-CP (Vietnamese
Government, 2005d), forestry projects can borrow up to 85% of the total projects
capital and for up to 15 years. A more recent policy, Decision No. 443/2009/QD-
TTg (Vietnamese Government, 2009) states that the Government subsidizes
interest rate from bank loans up to 4%/ year and for 2 years.
Both household farmers and state forest enterprises are allocated forest land for 50
years. However, there are some different features between households and state
enterprises in terms of legal requirements and forest management practices. First,
forest land which is allocated to households shall not exceed 30 ha, while state
enterprises can be allocated up to a thousand ha. Households determine how much
money to invest into their forests. But planting costs of state enterprises, which
include seedlings, labour, fertilizers, tending cost up to year 3, and other costs, are
regulated by the Government. For example, state enterprises are not allowed to
spend more than 10% of the total planting costs for management costs (MARD,
2005). State enterprises have to spend more money on forest protection (against
thieves) than households do. There are only a small number of household farmers
who borrow from the bank to invest into their forests. They normally use their
own money or borrow money from relatives and friends.
1.3.3 Market conditions
As stated in Government Decree No. 23/2006/ND-CP (Vietnamese Government,
2006), forest owners are free to sell their forest products. Prime Minister Decision
661/1998/QD-TTg (Vietnamese Government, 1998) encourages forest owners to
plant tree species that have high economic values. Decision No. 40/2005/QD-
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BNN (Vietnamese Government, 2005a) allows forest owners to make their own
decisions about harvest ages of timber and clear-cut sizes. Decision No.
100/2007/QD-TTg (Vietnamese Government, 2007b) states that the Government
encourages forest owners to lengthen rotation ages. However, there is no specific
policy that persuades forest owners to maintain longer rotation.
According to Nguyen, et al. (2006), there are two types of timber dominant in Yen
Bai: small-size timber used for making wood-chip, pulp and construction work;
and large-size timber, around 13-15 years, for making exported products. Small-
size timber end-users include local small-scale wood-processing units, wood-chip
factories, Bai Bang paper mill, and Cau Duong match factory. Large-size timber
end-users are wood-processing factories, local carpenters, and constructing
companies. Timber can be sold directly by forest owners to timber end-users or
through timber collectors and/or timber wholesalers and/or licensed trade
individuals and organizations.
According to some forest owners3
, they have no difficulties in selling their timberand timber price varies with tree ages or diameters. Forest management costs
include planting cost, tending cost, protection cost, land tax and bank interest.
There are three main types of timber price: stumpage price, price at landing 1, and
price at buyers place4. Transportation costs make up a large proportion of the
timber price. Growers also recognize that selling large-size timber is more
profitable than small size-timber. However, they do not harvest tree later because
of bank loans and illegal logging for forest enterprises, and of daily basic needs
and lack of capital for households.
3Personal communications4Landing 1 is a place nearby forests that forest owners in this region unload their raw timber forbusiness men to buy and transport to wood-processing companies or other users. Buyer place
implies location of wood-processing companies or of other users. It means that raw timber istransported to door.
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The study of Nguyen (2009) shows that export revenue of processed-wood
products has increased dramatically over the last several years. However, 80% of
the raw wood to produce these processed-wood products is imported. The import
price of Eucalyptus is 2.9 million VND/m3 and Acacia is 1.5 million VND/m3;
these are much higher than domestic timber prices for the same tree species.
Moreover, transportation cost accounts for 27% of total import price. Eighty
percent of wood-processing factories are located in the southern part of Vietnam.
1.4 RESEARCH OBJECTIVES
1.4.1 General objectives
This research studies the optimal management strategies for planted forests from a
private and societal perspective, and designs an optimal public policy for
promoting biodiversity in planted forests. While private forest owners take into
account the value of timber production and carbon sequestration, social managers
consider not only these same values but also biodiversity maintenance in
harvesting decisions.
1.4.2 Specific objectives
The specific research objectives are as follows:
1. To determine the planting and harvesting strategies of a forest which maximize
net returns from selling timber and sequestering carbon.
2. To determine the planting and harvesting strategies of a forest which maximize
net returns from selling timber, sequestering carbon, and maintaining biodivesity.
3. To compare the optimal harvesting strategies with the actual management
strategies in Yen Bai province, Vietnam for Eucalyptus urophylla and Acacia
mangium.
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4. To analyse the sensitivity of the optimal management strategy to timber price,
carbon price, discount rate, carbon payment scheme, planting cost subsidy, carbon
sequestration function, and the level of economies of planting scales, ceteris
paribus.
5. To recommend policy implications to further develop multiple-use forests
(timber production, carbon sequestration, and biodiversity conservation) in
Vietnam.
1.5 RESEARCH QUESTIONS
1.5.1 Optimal forest management for timber production and carbon
sequestration
From a private perspective (i.e. maximizing profit without considering
biodiversity benefits), the research attempts to answer the following questions at
both stand level and forest level models:
1. What rotation ages are currently applied for Eucalyptus urophylla and Acacia
mangium in Yen Bai province, Vietnam?
2. How much does tree planting cost? What are timber prices for these two tree
species?
3. Would forest owners be willing to delay their harvest if they were financially
supported? If yes, for how long? How much money would they expect to be paid
in order to delay?
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4. Which pattern of planting and harvesting trees should a forest owner follow in
order to maximize the net present value from timber harvesting and carbon
sequestration?
5. What are the differences in the net present value (NPV) and the rotation age (T)
between two optimal management strategies that consider or do not consider the
value of carbon sequestration?
6. What is the difference in rotation age between the optimal and the actual
management strategies?
7. How does the optimal management strategy vary with a change in timber price,
carbon price, discount rate, carbon payment scheme, planting cost subsidy, carbon
sequestration function, and the level of economies of planting scales, ceteris
paribus?
1.5.2 Optimal forest management for biodiversity conservation
From a societal perspective, with given initial stages of planted forests, the
research attempts to answer the following questions:
1. Which pattern of planting and harvesting trees should a forest owner follow in
order to maximize the net present value from timber harvesting and carbon
sequestration, and accommodate a minimum viable population of birds?
2. What are the differences in the NPV and T between two optimal management
strategies that consider or do not consider a minimum viable population of birds?
3. How does the optimal management strategy vary with a change in the MVP, the
discount rate, timber price, and carbon price, ceteris paribus?
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1.5.3 Policy tools and the optimal level of direct payments
The research attempts to address the following questions in order to recommend a
suitable policy tool for promoting biodiversity in planted forests.
1. What are the attitudes of forest owners towards biodiversity conservation in
planted forests?
2. What policy instruments are relevant to fill the gaps in the NPV and T between
the current forest management strategy and the optimal strategy when biodiversity
conservation is considered?
3. What is the optimal level of direct payments to encourage forest owners to
enhance biodiversity in planted forests?
1.6 CONTRIBUTIONS
The study contributes to the literature by finding and analysing the optimal
management strategy at a forest level for planted forests when carbon
sequestration and biodiversity conservation are considered. The optimal forest
management model of Faustmann (Faustmann, 1849) is extended to include both
biodiversity maintenance and carbon sequestration. The model is also extended to
incorporate multiple forest stands, spatial arrangements of forest stands, and
spatial interactions among forest stands. In this context, spatial arrangements referto how stands are put together geographically, and spatial interactions are defined
as the economies of planting scale.
In Vietnam, all forest land is under state ownership and forest land allocated to
households shall not exceed 30 ha and 50 year-land-use right (Vietnamese
Government, 1999). These features of household ownerships make this type of
forest ownership in Vietnam different from other types of ownerships in other
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nations, such as individual private owners, non-industrial forest owners and
private enterprises, and all of which have been studied in the literature (Englin &
Callaway, 1993; Tahvonen, 1999; van Kooten, et al., 1995).
Most of the studies on optimal forest management are for slow-growing trees
based in temperate forests and in developed countries. It is important to recognize
that forest management for even the same dominant trees species may still be
different in different countries (Diaz-Balteiro & Rodriguez, 2006). This research
contributes to the body of the literature by analyzing the management of tropical
planted forests in a developing country, where the removals of emissions from
forests and biodiversity conservation need to be enhanced (CBD, 2002; UNFCCC,
2009).
The study contributes to the literature by providing policy conclusions for
internalizing carbon sequestration and policy tools for enhancing biodiversity in
planted forests under a particular socio-economic context of Vietnam. These
public policy tools will be a useful frame work for policy makers to developmultiple-use plantation forests. Such policy tools are important since, currently,
there is no multiple-use plantation forest in Vietnam (FAO, 2006) and the
government is very keen to develop it. The study also provides the optimal level
of direct payments to induce a forest owner to adopt the optimal management
strategy from a societal perspective.
The optimal forest management strategy will help forest owners make their plansand manage their forests profitably when carbon sequestration has market value.
The results will be used to recommend policy to the Ministry of Agriculture and
Rural Development to achieve a desired management strategy for different tree
species and ownerships; to cope with a change in market conditions; to encourage
carbon storage; and to enhance biodiversity in Vietnam.
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1.7 THE STRUCTURE OF THE THESIS
The thesis is organized as follows: Chapter 2, the literature review covers the
optimal forest management models with timber production, carbon sequestration,biodiversity conservation, and uncertainties. The literature on forest public
policies is also discussed in this chapter. Chapter 3 explains the methodology of
the study, including the background for the biodiversity model, the optimization
models, and the survey of forest owners in Vietnam. Results and discussion of the
survey, the optimization models, and policy tools are presented in Chapter 4.
Finally, Chapter 5 summarizes and concludes the thesis.
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2.CHAPTER TWO. LITERATURE REVIEW
2.1INTRODUCTION
Optimal forest management has been investigated for around hundred and fiftyyears. Over time the focus of the optimization problem has been extended from
the maximization of the private and economic benefits of single stand forests to
multiple stand forests and from a single rotation to an infinite sequence of
rotations. Additional extensions have included the move from deterministic to
stochastic models and the incorporation of other than timber values.
As climate change and biodiversity loss are today among the greatest challenges
facing the 21stcentury, carbon sequestration and biodiversity preservation, two of
the important ecosystem services of forests, have been incorporated in the
decision making process for optimal forestry management from societys point of
view.
In this chapter, the literature on optimal forest management will be reviewed with
special emphasis on the role of forests in carbon sequestration and the relationship
between biodiversity and planted forests. Gaps in the literature will be identified
especially where models fail to provide the necessary information for decision
makers to determine optimal management strategies.
The structure of this chapter is as follows. The next section reviews literature on
optimal forest management. Section 2.3 presents the importance of biodiversity,
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its measurement and valuation problems and how forest management affects it.
The next section will review policy tools that can be used in case private decisions
need to be aligned with socially optimal decisions. The final section presents a
synthesis of the chapter and identifies some of the gaps in the literature.
2.2OPTIMAL FOREST MANAGEMENT
One question of importance to forest owners is the optimal time at which to fell
trees. The answer is obtained by choosing the age of timber at which the net
present value of benefits from the stand of timber is maximized. This process to
determine the optimal harvest age is known as optimal forest management. Thebenefits from the stand of timber can be only the monetary value from selling
timber, or can include the benefits from carbon sequestration, amenities, and
biodiversity conservation.
The following sections discuss the literature regarding optimal forest management
which mentions these benefits in turn. Since the provision of biodiversity
conservation may not have an economic value, discussion regarding a subsidy for
promoting biodiversity is also provided in case the optimal harvest decision from
the forest owners views fails to include biodiversity conservation benefits.
2.2.1 Optimal forest management when only timber has market value
This section classifies the literature on optimal forest management into two main
categories: stand and forest level models. A forest usually consists of many
stands, which are contiguous groups of trees sufficiently uniform in species
composition, arrangement of age classes, site quality, and condition to be
distinguishable units (Smith, Larson, Kelty, & Ashton, 1997). Thus, a forest level
model is more complicated compared to a stand level model, and hence, the
literature regarding forest level management is poorer than stand level
management.
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The optimal management strategy for a single stand forest was developed by
Faustmann (1849). He calculated the value, which bare forest land possesses
when in forestry use, of an even-aged stand under a clear-cut management
practice. A stand was defined as a working section, which is under the same
silvicultural system and rotation and can be considered as a uniform whole for
yield calculation. He assumed that the land has no other uses, in other words, only
the value which bare forest land possesses when in forestry use is calculated. Let
V be the value of bare forest land in forestry use, the Faustmann formula is as
follows.
rT
rT
e
keTvcpV
=
1
)()(
Where: Tis stand age at which the forest is clear-cut,k replanting cost at the start
of every rotation,p price of timber, charvesting cost, v(T)timber growth function,
and r interest rate. To solve the problem, setting the derivative of Vequal to zero
yields:
0)()(' = rVTrpvTpv
This equation implies that it is optimal to clear-cut a stand when the growth rate
of the value of the standing trees equals the interest on the standing trees and bare
land. The optimal rotation period is increasing with a rise in k and decreasing with
a rise inp and r. The Faustmann model has provided the usual starting point for
understanding the economics of forestry. It has also been used in forestry
operations and has served as a highly useful and influential framework for various
extensions in forest economics (Tahvonen, 2004a). The Faustmann model,
however, is far from reality: it describes the problem for a single age class only,
and assumes no uncertainty and no environmental preferences.
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The more general problem of harvesting a forest area with many stands (i.e.
different age classes) was well known even before Faustmann. The problem,
which has a long history in forest science, is to find an age class-specific timber
harvesting programme over time that maximizes the economic surplus from
forestry (Davis & Johnson, 2001; Leuschner, 1990).
In the forest economics literature, the optimal management strategy for a multiple
stand forest was first introduced by Mitra and Wan (1985; 1986). Their studies
represent remarkable progress in understanding the forestry age class problem
(Tahvonen, 2004a). They applied a dynamic programming approach and found
that: (i) if the utility function is linear, the Faustmann periodic solution is optimal;
and (ii) if the utility function is increasing and strictly concave, an optimal
solution converges to the maximum sustained yield5solution.
2.2.2 Optimal forest management including amenity values and carbon
sequestration
The incorporation of amenity values and carbon sequestration into a forest
optimization model is discussed in this section. Again, the section is divided into
stand level and forest level categories. Solutions to these models are compared to
the Faustmann model solution.
Hartman (1976) extended the Faustmann model to include the amenity value of
forests. He considered a forest growing on a given plot of land, to which a clear-
cut practice was applied. Timber prices were assumed to remain constant over
time and forest output was considered to be small relative to aggregate supply. Let
V(T) be the timber growth curve, giving the stumpage value of the timber in a
forest at the age T. The slope of V(T) is initially positive and increasing, then
increasing at a decreasing rate, and finally levelling off as the forest reaches a
mature steady state. Let F(T) denote the value of the recreational and other
5
Maximum sustainable yield stands for maximizing the mean annual increment (Hyytiainen &Tahvonen, 2003)
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services flowing from a standing forest of age T. The slope of F(T) is initially
positive and then increasing at a decreasing rate to a maximum. The recreational
and timber stumpage values are dependent on the age of the forest. Planting costs
and other outlays are ignored. The optimal age of harvest is the same for each
regeneration of timber and is denoted by T. Let t be a point of time. The objective
is to maximize the present value from selling timber and the provision of
recreational and other services:
rT
T
rtrT
e
dttFeTVe
PV
+
=
1
)()(0
Setting the first derivative of PVto zero yields:
)(
)(}
)1)((
)(
1
1{
)(
)(' 0
TV
TF
eTV
dttFe
e
r
TV
TVrT
T
rt
rT
+
=
Hartman found that the optimal rotation is longer or shorter than the Faustmann
rotation if environmental values increase or decrease with stand age. He
concluded that the presence of recreational or other services provided by a
standing forest may well have a very important impact on when or whether a
forest should be harvested. Those models, which consider only the timber value of
a forest, are likely to provide incorrect information in the many cases where a
standing forest provides a significant flow of valuable services (Hartman, 1976,
p. 57).The shortcomings of his model are that it did not include planting costs and
only considered a one-stand forest.
Van Kooten, Binkley and Delcourt (1995) studied the effect of carbon taxes and
subsidies on the optimal forest rotation age and concluded that the carbon optimal
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rotation age is a bit longer than the Faustmann rotation. In their model, carbon
benefits are a function of the change in biomass and the amount of carbon per
cubic meter of biomass. Carbon sequestration at any time is given by )(' tv ,
where is (metric) tons of carbon per m3 of timber biomass. The amount of
carbon released into the atmosphere depends on the fraction () of timber that is
harvested and goes into long-term storage in structures and landfills. Payment for
carbon is made yearly and the forest owner has to pay a tax for cutting the trees.
The price of carbon is constant over rotation length. Let PV be the net present
value from selling timber and sequestering carbon:
( ) ( )( )[ ]( )
rT
rT
cF
rT
T
rtrT
c
e
eTvPP
e
dtetvreTvP
PV
+
+
=
1
1
10
Where: Pcis the price or implicit social value of carbon that is removed from the
atmosphere, is (metric) tons of carbon per m3 of timber biomass, v(t) refers to
the amount of timber growing on a stand at time t, T is the rotation length (withthe objective being to find the optimal value of T that maximizes the NPV), r is
the discount rate, PF refers to the net price of timber per cubic meter, and
represents the fraction of timber going into long-term storage. The optimal
rotation age that takes into account both commercial timber values and carbon
uptake values is found by differentiating the above equation with respect to Tand
setting the result equal to zero.
( ) ( )
++
=++
T
rtCCFrTCCF
dtetvTv
rPPP
e
rrP
Tv
TvPP
0
)()(1)(
)('
Pc = 0 gives the Faustmann results, and PF = 0 and =0 gives the Hartman
rotation.
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Van Kooten et al. (1995) concluded thatcarbon subsidies and taxes may achieve
desired carbon sequestration in forests in developed countries. The inclusion of
the external benefits from carbon uptake results in rotation ages only a bit longer
than the Faustmann rotation age. Under some tax regimes, it may be socially
optimal never to harvest the trees. In van Kooten et al.s study, the rate of tree
growth is an important determinant of carbon benefits, while in Hartmans model,
the age of trees is important for the value of recreation. The van Kooten et al.s
model did not include other external benefits (e.g. those related to the amount of
standing timber) beyond the carbon uptake benefits (e.g. those related to the
annual change in timber volume).
Also considering carbon sequestration, Diaz-Balteiro and Rodriguez (2006)
employed a dynamic programming approach and showed that the optimal rotation
age is sensitive to changes in the discount rate and the carbon price. Again,
Gutrich and Howarth (2007) confirmed that when carbon storage brings benefits
to society, the optimal rotation ages are extended depending on the forest types.
They also pointed out that in the absence of policies to promote forest carbon
storage; forest owners employ clear-cut harvesting regimes with a relatively short
rotation age. Other studies on single stand forest shows that carbon rotation age
differs from timber rotation age including Englin and Callaway (1993), Guthrie
and Kumareswaran (2009), Thompson, Adams, and Sessions (2009), and Kthke
and Dieter (2010).
With regard to forest level models, Gutierrez, Zapata, Sierra, Laguado and
Santacruz (2006) used a genetic algorithm to find optimal management regimes
for multiple stand forests under the Clean Development Mechanism6. They
discovered that the optimal rotation age is increasing with an increase in carbon
price and the profitability of the forest is very sensitive to its size, especially when
6 The Clean Development Mechanism (CDM) is an arrangement under the Kyoto Protocolallowing industrialised countries with a greenhouse gas reduction commitment (called Annex B
countries) to invest in projects that reduce emissions in developing countries as an alternative tomore expensive emission reductions in their own countries. (UNFCCC)
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forest size is less than 2,000 ha. They also concluded that information on carbon
sequestration in the tropics is scare. In their study, however, all forest stands are at
the initial age of zero and the study is based on the assumption of no spatial
interdependence among forest stands.
2.2.3 Optimal forest management with biodiversity maintenance
While for plantation forests the value of timber and sequestered carbon can be
obtained from the literature and market information, the value of biodiversity is
not always available. One reason is that biodiversity benefits are not readily
marketable. The other is the common belief that plantation forests provide little interms of biodiversity benefits, especially plantations in tropical countries.
Consequently, the literature on valuing the biodiversity benefits of plantation
forests is limited.
Efforts have been made to put a dollar value on biodiversity in planted forests. For
example, Pouta (2005) used a contingent valuation method to analyze peoples
beliefs on biodiversity conservation. Her results show that the value of
biodiversity is 40 EUR/ha. Employing a choice modelling approach, Rivas Palma
(2008) found that the environmental benefits in planted forests in New Zealand
range from 100 to 900 NZD/ha. However, Lindhjem (2007) claimed that
willingness to pay is insensitive to the size of the forest and tends to be higher if
people are asked as individuals rather than on behalf of their household.
The value of biodiversity in planted forests has been used to analyse the optimal
forest management at a stand level. Koskela, Ollikainen and Pukkala (2007a)
incorporated the value of biodiversity of 40 EUR/ha by Pouta (2005) into
Hartmans model (1976). They found that the optimal rotation age with
biodiversity is longer than the Faustmann one. This result is in line with the
findings by Juutinen (2008) who also internalized the value of biodiversity into
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optimal forest management. Again, the weakness of these models is that they
consider only a single stand forest, which is far from the reality.
Optimal forest management has been extended to include environmental benefits
other than carbon sequestration and biodiversity preservation, such as water
benefits (Chisholm, 2010; Creedy & Wurzbacher, 2001); uneven-aged stands
(Tahvonen, Pukkala, Laiho, Lhde, & Niinimki, 2010); and thinning (Hyytiainen
& Tahvonen, 2002). Considering these benefits and features of forests in a forest
level model would be interesting, however, it is too complicated to solve the
model.
With regard to forest level models, the forest science literature has incorporated
biodiversity-related constraints, such as species persistence, or old-growth
benefits, into harvesting problems. Studies that included species persistence are
Calkin et al. (2002), Doherty, Marschall, & Grubb (1999), Nicholson et al. (2006),
and Polasky, Nelson, Lonsdorf, Fackler, and Starfield (2005); and old-growth
benefits are Caro, Constantino, Martins, and Weintraub (2003), Khajuria,Laaksonen-Craig, and Kant (2008), Latta and Montgomery (2007), and
Montgomery, Latta, and Adams (2006). However, these studies do not address
optimal rotation ages.
In the forest economics literature, Tahvonen (2004b) included old-growth values
into his multiple stand model as follows.
[ ] tt
tt rhAcUMaxV
=
++= )1()()(0
Where U denotes a utility function for timber output and tc the volume of timber,
A is the utility function related to environmental characteristics, and th a function
of old growth conservation. The results of Tahvonens analysis show the existence
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of an optimal long-run stationary continuum for land allocation between timber
production and old-growth conservation. At each point of the continuum, timber
is produced under the Faustmann rotation7. The study of Tahvonen was, however,
based on the assumption of no spatial interaction among forest stands.
Spatial interactions can be interpreted as either biological or financial interactions.
To capture biologically spatial interactions, Swallow, Talukdar and Wear (1997)
employed a dynamic programming approach and allowed optimization of timber
harvesting decisions in a forest consisting of two stands. In their study, spatial
interactions among forest stands refer to the dependence of the non-timber benefit
function for any stand on its own age and the ages (or conditions) of the
neighbouring stands. Their results show that the nature of stand interactions may
alter the optimal management plan substantially. These results are in line with the
findings by Amacher, Koskela, and Ollikainen (2004) who employed a similar
definition of spatial interactions and of optimization method. Koskela and
Ollikainen (2001) considered a forest including one focal stand and an exogenous
adjacent stand which affects the amenity production of the focal stand. They
showed that the rotation age may increase with timber price rather than decrease
as in the Faustmann model. However, their models included only two stands,
while in reality, the number of stands in forests is much higher.
Touza, Perrings, and Chas Amil (2009) extended a single stand forest model by
Touza, Termansen, & Perrings (2008) to analyse a multiple-stand forest (with
more than two forest stands). They considered non-timber benefits as a function
of total tree biomass of all the stands. Their results show that spatial interactions
among forest stands do change the optimal rotation age at the forest level
compared to the stand level. Similar to other earlier studies at a forest level, their
model did not specify spatial arrangements among forest stands.
7This means that the optimal management strategy divides forest land into two regions, one is for
timber production and follows Faustmann rotation, and the other is for old growth conservationand applies an extended rotation.
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Financially spatial interactions refer to economies of harvesting or planting scale.
At stand level, Termansen (2007) included economies of harvesting scale in his
analysis and found that the harvesting costs have a significance impact on the
optimal harvest strategy. His results also suggest that the optimal rotation does not
always decrease with interest rate as in the Faustmann model. At forest level,
Rose and Chapman (2003) analysed the role of economies of scale in harvesting
of timber and non-timber management strategies. Their results showed that the
managers decisions can be misleading if spatial interactions are ignored. Again,
their study included only two one-hectare stands.
2.2.4 Optimal forest management under uncertainty
Recently, forest optimization models have accounted for uncertainty associated
with forestry investments by allowing stochastic variations in, e.g. timber prices,
carbon prices, timber growth and discount rates. A stochastic process can be
understood as a collection of random variables, which are indexed by a time
parameter (Haigh, 2005). When the distribution of these random variables
satisfies certain properties, a stochastic process is referred to as a geometricBrownian motion, a diffusion process, or a mean-reverting process. For example,
a geometric Brownian motion is a continuous-time stochastic process in which the
logarithm of the randomly varying quantity follows a Brownian motion (Ross,
2007). A mean-reverting process is a process in which the random variables tend
to revert to a normal level with a certain speed of reversion, such as the price of
oil tends to drawback towards the marginal cost of oil production (Dixit &
Pindyck, 1994). These different approaches to model uncertainty have beenapplied to forest optimization models both at the stand and forest level.
Uncertainty has been incorporated in a single and an ongoing rotation (Faustmann
formula). Depending on assumptions made, some authors found that the optimal
rotation age is independent of timber price uncertainty, while others show that the
optimal rotation length and the net present value are positively correlated to price
uncertainty. Using continuous time, Clarke and Reed (1989) assumed timber price
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to follow a geometric Brownian motion and timber growth evolving as a diffusion
process. For a single rotation, their results show that price and growth
uncertainties lengthen rotation age and increase NPV value. For the Faustmann
rotation, they were unable to solve their model when both stochastic price and
stochastic growth were considered. When only price uncertainty was
incorporated, they show that price uncertainty has a small effect on rotation age,
but substantially increases the NPV.
Employing a similar methodology, though using a different specification for the
timber growth process, Reed and Clarke (1990) obtained results consistent to
those of Clarke and Reed (1989); except that in the single rotation, they found that
price uncertainty has no effect on optimal policy. Thomson (1992) extended the
Faustmann model to include timber price uncertainty. He used a binomial pricing
model and specified timber price as a lognormal stochastic process. Using
dynamic programming technique for both the Faustmann and his models, the
author showed that price uncertainty induces forest owners to lengthen their
optimal rotation age compared to the Faustmann solution. Moreover, his results
suggested that NPV is positively correlated with timber price fluctuations.
Beside stochastic price and stochastic growth, other types of uncertainty have also
been taking into account. Alvarez and Koskela (2006) assumed interest rate
evolving as a parameterized mean-reverting process and found that interest rate
uncertainty increases rotation age under risk aversion. Motoh (2004) studied the
optimal rate of use of a natural resource under uncertainty with catastrophic risk.
They adopted the stock of a natural resource (in quantity) following a geometric
Brownian motion before catastrophic risk occurs, and the catastrophic risk is
described as a Poisson process. They used stochastic dynamic programming to
maximize expected discounted utility over an infinite horizon. They reported that
the optimal rate of use of the natural resource increases with uncertainty or
catastrophic risk.
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More recently, a real option approach has been used to deal with uncertainty in
forestry economics. Insley (2002) solved a continuing rotation using the
Hamilton-Jacobi-Bellman technique under a mean-reverting or geometric
Brownian motion price process with deterministic volume. She argued that
specifying timber price as a mean-reverting process is more rational than a
geometric Brownian motion. Under a mean-reverting price, uncertainty impacts
significantly on the optimal rotation period and the option value. Chladna (2007)
applied a real option approach to analyse optimal single rotation for single stand
forest under timber price and carbon price uncertainty. The author specified
timber price as a mean-reverting process and carbon price as a geometric
Brownian motion process. Employing dynamic programming technique, thispaper showed that stochastic timber price and/or stochastic carbon price extend
the optimal rotation length. This effect, however, is small when carbon price is
low.
At the forest level, Tahvonen and Kallio (2006) extended Reed and Clarke (1989;
1990) to include risk aversion, age class structure, and planting cost. They
specified timber price as a geometric Brownian motion or a mean reverting price
process. Due to complexity of the problem, the authors used discrete time for their
model and applied a stochastic programming technique to solve the model. In
contrast to the literature, which mostly discusses single stand forests, the paper
showed that price uncertainty may shorten optimal rotation age. This result
follows from their assumption that only replanting cost has a significant role in
determining cost factor, in contrast to earlier work that only harvesting cost is
costly. The authors adopted a short planning horizon, T=13. This paper ignored
environmental values of forests.
In summary, the literature about uncertainty at both the stand and forest levels
shows that uncertainty does affect the optimal rotation age of single and multiple-
stand forests. The impact on the rotation age differs according to assumptions
made about the type of uncertainty and the forest owners attitude to risk.
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2.2.5 Optimal forest subsidy for promoting biodiversity
The literature mentioned in section 2.2.3 shows that the optimal rotation age under
the presence of biodiversity value differs from the Faustmann rotation age. Hence,there is a gap for the government to encourage forest owners to follow the
biodiversity rotation age via policy tools. Research at a stand level has been
conducted to determine the best policy tools for the government to solve this
problem.
Optimal biodiversity rotation ages, at a stand level, for planted forests when
retention trees (i.e. trees left standing after harvest) are the key instrument inpromoting habitat and species diversity have been developed by Koskela,
Ollikainen and Pukkala (2007b). They assumed that the government punishes
landowners for a private rotation age which is too short, and bribes landowners to
leave retention trees. They solved first the socially optimal rotation age and the
volume of retention trees, and compared this solution with the private solution
with landowners behaving according to either Faustman or Hartman models. They
used a willingness to pay of 40 EUR/ha/year as a value for biodiversity. Theirresults show that a combination of retention tree subsidy and tax instrument are
needed to induce the landowner to lengthen the private optimal rotation period
and to provide an incentive to leave retention trees. However, their biodiversity